Does Medicare make sense for seniors with employer health coverage?
Editor's Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, "Ask Phil," aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, "Get What's Yours for Medicare," and co-author of "Get What's Yours: The Revised Secrets to Maxing Out Your Social Security." Send your questions to Phil.
More and more employers are adopting high-deductible health plans, which usually include a health savings account. In 2016, between 20 and 23 million employees and family members had HSAs, according to the Employee Benefit Research Institute. These plans can make Medicare more popular to employees aged 65 and older, even if they have the option of staying on their employer plans.
Ask Phil readers already are familiar with a major pitfall of HSA plans for employees who are receiving Social Security. In order to receive any type of Social Security payment, beneficiaries aged 65 and older must, by law, also sign up for Part A of Medicare.
Part A charges no premiums to people who have enough work experience to qualify for Social Security benefits. It can come in handy as supplement insurance to help pay for hospital and other institutional health care expenses that are covered by Part A but either not covered by their employer plan or not fully paid for by that plan.
This is usually a nice supplemental insurance benefit to have. However, Part A comes at a heavy price for HSA participants: Having Part A qualifies as being on Medicare, and Medicare recipients are prevented under IRS rules from making new pre-tax contributions to an HSA. They may use funds already in an HSA account, but cannot add new funds. If their employers don't also offer a non-HSA health plan, the employees could be on the hook for sharply higher health insurance expenses.
This downside, when added to the burden of high and often rising annual plan deductibles, can make getting Medicare more attractive for employees with group health plans. In the past, I usually told employees turning 65 that they did not have to get Medicare and could simply keep their employer plans.
My thinking has changed.
The rise of high-deductible plans should trigger a serious study by people about the merits of Medicare – either in addition to employer plans or in place of them.
The current monthly premium for Part B of Medicare is $134 a month. Part B covers expenses for doctors, care at non-hospital facilities, and durable medical equipment. This works out to a bit more than $1,600 a year. There also is a $183 annual deductible that people must pay for Part B expenses before their insurance coverage begins. Here's a summary of Part A and Part B costs.
For people keeping their high-deductible employer plans, laying out $2,000 for Part B premiums and deductibles could well be money well spent. This is because Medicare can be a secondary insurer and can pay a big hunk of covered plan expenses before the plan's annual deductible is reached.
I regularly receive questions from Ask Phil readers about whether Medicare can help pay these employer plan deductibles, and how this process works. Casey Schwartz, a benefits expert at the Medicare Rights Center, provided this explanation:
"Medicare pays secondary to other insurance (including paying in the deductible) in situations where the other insurance is primary to Medicare. There are some restrictions — it has to be a Medicare covered service, and the total amount paid must be equal to or less than the Medicare approved amount."
If the care costs more than the Medicare-approved amount, she explained, Medicare coverage will cover up to that amount, and the employee would pay the difference if they wanted the care.
Schwartz noted that there is an online Medicare manual explaining rules of how Medicare works as a secondary payer of covered claims. Here is a section that gets to the heart of how it can work with employer group health insurance (GHP):
"Where a GHP is primary payer, but does not pay in full for the services, secondary Medicare benefits may be paid, to supplement the amount it paid for the Medicare covered service. If a GHP denies payment for services because they are not covered by the plan as a plan benefit bought for all covered individuals, primary Medicare benefits may be paid if the services are covered by Medicare. Primary Medicare benefits may not be paid if the plan denies payment because the plan does not cover the service for primary payment when provided to Medicare beneficiaries.
"A GHP's decision to pay or deny a claim because the services are or are not medically necessary is not binding on Medicare. Contractors must evaluate claims under existing guidelines derived from the law and regulations to assure that services are covered by the program regardless of any employer plan involvement."
If you spend a lot on prescription drugs, you would want to explore getting a Medicare Part D drug plan. You usually need Part B to qualify for Part D. But this is not required if your employer plan's drug coverage is inferior to a typical Part D plan. This is known as the drug coverage "credibility" test.
If you must pay thousands of dollars out of pocket for your drugs prior to reaching your health plan's annual deductible, there is a good chance the drug coverage provided by your employer plan would not be considered credible. Employers are legally required under Medicare rules to issue annual statements about the credibility of their drug coverage. It might be possible for you to avoid getting and paying for Part B in this situation, but I'd only recommend this approach if you are comfortable that the bulk of your uninsured health expenses will be for prescription drugs.
It may well be that having employer insurance plus Medicare is not as attractive as simply dropping the employer plan and relying solely on Medicare as your primary insurer. This decision depends on how much your employer subsidizes your health care and on your maximum out-of-pocket expenses in a high-deductible employer plan. Also, if you drop an employer plan, it might not admit you back if you change your mind. These possibilities should be explored with your employer's benefits experts.
Here are this week's reader questions:
Roger – Ariz.: Am I not permitted to decline Medicare Part A when applying to receive Social Security benefits? I'm 66, employed, and on my employer's group health plan (PPO). My employer has said it may move its insurance to a high-deductible health plan, with a health savings account. If I have Part A, am I automatically ineligible for the HSA and employer insurance? If so, would I be eligible for COBRA?
Phil Moeller: You cannot receive any type of Social Security benefit if you are 65 or older without also being enrolled in Part A. For better or worse, it's the law.
In that event, you would not be able to make contributions to an HSA. Of course, I don't know if your employer would also offer a non-HSA health plan. If not, it probably would make sense for you to get Medicare rather than signing up for a temporary COBRA extension of your employer plan.
Solomon – Wash.: I cannot understand why dental care is excluded from Medicare. This is something that older Americans need, and we need to begin this conversation NOW!
Phil Moeller: I agree that this is a discussion that we should have, and that it should include hearing and vision insurance as well. Many Medicare Advantage plans offer insurance for these things, but I'm guessing that what you would like is more comprehensive coverage that would allow people to take proper care of themselves and thus avoid many later-life health issues that can be directly traced to their earlier inability to afford needed care.
While the need is great, robust dental coverage for older people is not very attractive from an insurance perspective. When the population skews to people who are older, the need for dental care becomes much greater. For this population, you're really not talking about a stand-alone insurance product so much as including specified care needs as one of the services that Medicare would cover.
I'd be willing to pay a bit more for my Part B if it covered dental care. But I bet a lot of consumer groups would argue that the government should foot this bill or that wealthier people should pay higher Medicare rates to subsidize dental care for others. If Medicare did cover dental care, you could expect the dental lobby to push hard for favorable reimbursement rates. From where I sit, this is where the battle would be joined.
Ann: I just turned 65; my spouse is 61. Both of us are currently not working and we purchase insurance on our state exchange. My husband has accepted a job offer and will be eligible for group health insurance next month. Prior to the job offer, I had planned to get Medicare but have not actually signed up. When I went to the Social Security office, they signed me up for Part B of Medicare, even though I was not then 65. What should I do about the month-long gap between me turning 65 and being covered on his new employer plan?
Phil Moeller: You can terminate enrollment in Part B and should do so immediately to avoid being charged a premium. You can get this money back, but it can be a time-consuming process.
Few people know this, but you (and your husband) can keep your exchange plan even after you turn 65. In that event, you would lose any income-related subsidies, but in your case this would be a minor concern because you're only talking about staying on for another month.
When you eventually do need Medicare, you should have a special enrollment period. At that time, your husband's employer will need to complete this form, which attests that you have had employer health insurance and thus are qualified for the special enrollment period and will face no adverse consequences when you do enroll in Medicare and related Medicare policies.
Vicky: My parents are 84 and 85. They want to move to Germany where my sister and I can be of more help. My question is, can they tap into their Medicare from there? My dad had Parkinson's but is still mobile. Is this move feasible?
Phil Moeller: Unfortunately, basic Medicare will not cover any of their medical expenses in Germany. Some Medicare Advantage and Medigap supplement plans do cover emergency overseas medical expenses, but this coverage is designed for travelers and not permanent overseas residents. If your parents wish to keep their Medicare, they could only use it if they returned to the U.S. for care. Unless they are planning to do so, they probably should drop their Medicare plans. I always advise people to confirm this with their Medicare insurers. Here's a primer on Medicare for people living outside the U.S. Sorry I don't have better news.